Preview
FILED: NEW YORK COUNTY CLERK 02/25/2023 06:25 AM INDEX NO. 654992/2022
NYSCEF DOC. NO. 62 RECEIVED NYSCEF: 02/25/2023
Transcript of Day 2
Thursday, September 29, 2022
Abrams et. al v. Abrams et. al 01-20-0007-3684
www.TP.One
www.aldersonreporting.com
www.accutrancr.com
800.FOR.DEPO (800.367.3376)
Scheduling@TP.One
Reference Number: 121128
DayNEW
FILED: 2 YORK COUNTY CLERK 02/25/2023 06:25 AM INDEX NO.9/29/2022
654992/2022
NYSCEF DOC. NO. 62 Page
RECEIVED NYSCEF: 1 (1)
02/25/2023
1 AMERICAN ARBITRATION ASSOCIATION
2 ------------------------------------)
MARCUS ABRAMS, CLEARWATER VENTURES, )
3 INC., LISA ABRAMS and the )
LISA ABRAMS REVOCABLE TRUST, )
4 ) Case No.:
)01-20-0007-3684
5 Claimants, )
)
6 -against- )
)
7 RUSSELL ABRAMS, SANDRA ABRAMS and )
"RUSSELLCAR and its related )
8 entities" defined in the parties )
agreement as "ISSUER" )
9 )
Respondents. )
10 ------------------------------------)
11
12 MINUTES OF PROCEEDINGS
13 HELD AT 110 WEST 40TH STREET,
14 NEW YORK, NEW YORK
15 September 29, 2022
16 9:40 a.m.
17 Day 2
18 B E F O R E: ARTHUR D. FELSENFELD, ESQ.
ARBITRATOR
19
20
21 Reported by: Elbia Brumit
22
23
24
25
Scheduling@TP.One 800.FOR.DEPO
www.TP.One (800.367.3376)
DayNEW
FILED: 2 YORK COUNTY CLERK 02/25/2023 06:25 AM INDEX NO.9/29/2022
654992/2022
NYSCEF DOC. NO. 62 Page 202/25/2023
RECEIVED NYSCEF: (2 - 5)
Page 2 Page 4
1
A P P E A R A N C E S: 1 EXHIBITS IDENTIFIED
2 2 CLAIMANTS' EXHIBITS
3
ARBITRATOR: ARTHUR D. FELSENFELD, 3 EXHIBIT DESCRIPTION PAGE
4 afelsenfeld@gaspanllp.com 4 Exhibit No. 1 Purchase Memora 86, 125, 239
5 5 Exhibit No. 2 Statement of Claim 123
6
KIM & SERRITELLA LLP 6 Exhibit No. 32 Financials 125, 127,
Attorneys for Claimants 236, 301
7
110 W. 40th Street, 10th Floor 7 Exhibit No. 45 Expert Reports 116
New York, New York 10018
8
BY: JAMES R. SERRITELLA, ESQ. 8 Exhibit No. 47 Report 152
JUSTIN STONE, ESQ.
9
E-mail: jserritella@kandslaw.com 9 Exhibit No. 48 Amended Expert Report 151
10 10 Exhibit No. 49 Rebuttal 215
11 11 Exhibit No. 50 E-mail 167, 181
12
JAFFE & ASHER LLP 12 Exhibit No. 51 E-mail 168, 183
Attorneys for Respondents
13
600 Third Avenue, 24th Floor 13 Exhibit No. 52 E-mail 168
New York, New York 10601
14
BY: GREGORY GALTERIO, ESQ. 14 Exhibit No. 62 Rebuttal 208
GLENN P. BERGER, ESQ.
15
E-mail: ggalterio@jaffeandasher.com 15 Exhibit No. 80 E-mail 28, 119,
16 Phone No.: 212-687-3000 16 Exhibit No. 81 E-mail
178, 263
34, 121
17 17
18
ALSO PRESENT: 18
19
MARCUS ABRAMS 19
20
LISA ABRAMS 20
21 21
22 22
23 23
24 24
25 25
Page 3 Page 5
1
INDEX 1
EXHIBITS IDENTIFIED (Continued.)
RESPONDENTS' EXHIBITS
2 2
EXHIBIT DESCRIPTION PAGE
3
EXAMINATION OF MARCUS ABRAMS 3
Exhibit A E-mail 288
4
EXAMINATION BY PAGE 4
Exhibit I E-mail 273
5
MR. GALTERIO 6 5
Exhibit N Agreement 270
6
MR. SERRITELLA 28 6
Exhibit O Income Statement 199
7 7
Exhibit P Income Statement 199
8 8
Exhibit W Diagram 29
9
EXAMINATION OF LISA ABRAMS 9
Exhibit AA Report 155, 268
10
EXAMINATION BY PAGE 10
Exhibit DD1 E-mail 6
11
MR. STONE 41, 104 11
Exhibit FF E-mail 17
12
MR. GALTERIO 85 12
13 13
14 14
15
EXAMINATION OF ROBERT JONES 15
16
EXAMINATION BY PAGE 16
17
MR. STONE 108, 300 17
18
MR. BERGER 228 18
19
MR. GALTERIO 297 19
20 20
21 21
22 22
23 23
24 24
25 25
Scheduling@TP.One 800.FOR.DEPO
www.TP.One (800.367.3376)
DayNEW
FILED: 2 YORK COUNTY CLERK 02/25/2023 06:25 AM INDEX NO.9/29/2022
654992/2022
NYSCEF DOC. NO. 62 Page 302/25/2023
RECEIVED NYSCEF: (6 - 9)
Page 6 Page 8
1 ARBITRATOR FELSENFELD: We are here 1 Q. I remember yesterday you weren't
2 on day two of the hearing in Abrams V. 2 sure what the attachment of this was or you
3 Abrams. 3 weren't certain; is that correct?
4 Mr. Galterio, you were going to 4 A. Yes.
5 recall Mr. Marcus Abrams to deal with the 5 Q. Okay. So now does this refresh your
6 one document that was missing an 6 recollection that the agreement that you
7 attachment. It's now 9:41, I see that your 7 attached to this e-mail is indeed the purchase
8 client is not here. 8 memorialization?
9 Are you prepared to proceed with 9 A. Yes. As well as the guarantee.
10 the questioning of Mr. Marcus Abrams? 10 Q. And let's go back to the first page
11 MR. GALTERIO: Yes, I am, sir. 11 of the e-mail. Where it says, "Sandra, I don't
12 ARBITRATOR FELSENFELD: Okay. 12 know if you've seen this," but the agreement
13 MR. GALTERIO: And I also have one 13 that was supposed to be -- this is -- "but it,
14 other document that I might present. 14 the agreement that was supposed to be followed
15 ARBITRATOR FELSENFELD: Okay. 15 regarding my investment. This is why I received
16 MR. GALTERIO: Okay. 16 my percentage in Aracar."
17 M A R C U S A B R A M S, having been previously 17 Okay? You were certainly referring
18 duly sworn, was cross-examined and testified as 18 to the purchase memorandum, correct?
19 follows: 19 A. Yes, I was. I was, in this e-mail,
20 RECROSS EXAMINATION BY 20 explaining all of the bases that -- because
21 MR. GALTERIO: 21 there were multiple ones that --
22 Q. So Mr. Abrams, I'm going to show you 22 ARBITRATOR FELSENFELD: Could you
23 what's been marked as Exhibit double D1. And 23 just answer the question?
24 I'm representing to you that this was the e-mail 24 THE WITNESS: Yes.
25 that we were discussing yesterday which Sandra 25 Q. And when you said, "This is why I
Page 7 Page 9
1 forwarded to me last night. And which -- 1
received my percentage in Aracar," you are
2 actually, I printed out the attachment that was 2
referring to the purchase memorandum, are you
3 attached to that e-mail. So you can look at 3
not?
4 that, too. 4
A. I hadn't -- no. Well, I -- no.
5 (At this time, the witness 5
Q. Tell me what you were referring to.
6 perused the aforementioned item.) 6
A. I was referring to -- well, second
7 ARBITRATOR FELSENFELD: Do you have 7
to last sentence, in terms of the work I've done
8 a copy for me? 8
for Aracar creating it, nothing I received. I
9 MR. GALTERIO: Oh. Absolutely. 9
didn't receive any cash or equity.
10 ARBITRATOR FELSENFELD: Thank you. 10
At this point, I hadn't received
11 MR. GALTERIO: Sure. 11
equity, the promised equity for work as well as,
12 ARBITRATOR FELSENFELD: And before 12
under the agreement, all the entities flowing
13 you answer the questions, Mr. Abrams, you 13
would be covered under the conversion feature.
14 understand you are still under oath? 14
Which was still on -- which had never been -- we
15 THE WITNESS: Yes. 15
had never exercised.
16 ARBITRATOR FELSENFELD: I'm sorry. 16
Q. All right. Let's break this down.
17 Did you pose a question? 17
Let's look at the last sentence of
18 MR. GALTERIO: No. I was waiting 18
this.
19 for you to tell me I can proceed. 19
It says, "In terms of the work I've
20 ARBITRATOR FELSENFELD: Oh, by all 20
done for Aracar in creating it from nothing, I
21 means, please. 21
didn't receive any cash or equity."
22 BY MR. GALTERIO: 22
What did you mean by that?
23 Q. Did you have a chance to look at 23
A. At this time, we hadn't -- I hadn't
24 this document, sir? 24
received the equity that was promised.
25 A. Yes. 25
Q. All right. And then if you hadn't
Scheduling@TP.One 800.FOR.DEPO
www.TP.One (800.367.3376)
DayNEW
FILED: 2 YORK COUNTY CLERK 02/25/2023 06:25 AM INDEX NO.9/29/2022
654992/2022
NYSCEF DOC. NO. 62 Page 4 (10
RECEIVED NYSCEF: - 13)
02/25/2023
Page 10 Page 12
1 received any equity, then why were you saying in 1
exercised and you have a percentage.
2 the second sentence, "This is why I received my 2
But on top -- I'll just say that
3 percentage in Aracar"? 3
Russell didn't -- this didn't start off as oh,
4 A. I'm not sure. I don't -- 4
this is convertible debt and then it just
5 Q. Well, if you were reading it and you 5
maintained that. Russell's position on this was
6 are just reading it objectively, take out your 6
all over the board. The beginning, it was
7 subjective knowledge, what does that mean to 7
preferred equity.
8 you? 8
The only time he fully said -- and
9 MR. SERRITELLA: Objection. Calls 9
then he said at one point, oh, we'll -- we'll
10 for speculation. 10
mark the Aracar stock as a dividend. And then
11 ARBITRATOR FELSENFELD: Yeah, how 11
he said we'll -- you know, it -- what this
12 can you do that? 12
was -- and that's why the whole document is
13 MR. GALTERIO: Okay. Withdrawn. 13
called purchase memorialization. Because he --
14 Q. So at this time, is it your 14
he referred to it as everything under the sun.
15 testimony that you had no percentage in Aracar? 15
But basically, the way -- in terms
16 A. I had no documents. Or any -- 16
of the terminology, the legal -- the legal like
17 Q. That's not my question. 17
terminology. To me, there's equity and there's
18 A. In my mind, you are saying? 18
debt. Equity, you don't get paid. Equity, you
19 Q. I said -- 19
get paid just based on, you have far more risk.
20 A. Yes. In my mind, I had -- I was -- 20
Debt, you don't.
21 I had earned equity in Aracar, as well as Aracar 21
So it was all over the place. You
22 was part of RussellCar. And that the agreement 22
keep saying like oh, wasn't this in the
23 allowed for the conversion, which would cover 23
provision or that in the provision. But he's
24 all of the entities that -- that was -- that 24
the one who -- he said to get units. He said to
25 formed. That -- that were included in it. 25
purchase these units. The units, you get the
Page 11 Page 13
1
Q. But you don't know why you said, 1
money from. And I was just trying to get
2
"This is why I received my percentage in 2
something on a piece of paper that reflected
3
Aracar," following the first sentence? 3
his -- what he said.
4
A. Probably should have written -- this 4
So this was in the middle of Sandra
5
is another -- this is the second reason why 5
and I trying to work -- I looked at the context.
6
we -- we have equity in this thing. And just 6
This was in the middle of Sandra and I talking
7
because your husband is saying they're separate 7
about trying to get Russell to agree to settle
8
now, you don't get it. And then he said it's -- 8
this other case and focus on the insurance.
9
it's -- Russell's story changed on a daily 9
So if I worded it poorly, then I
10
basis. He -- I never converted. 10
worded it poorly. But the -- the truth and the
11
I never said I want to convert. I 11
facts are that I never, ever said I want to
12
never wanted to convert, because it didn't make 12
convert, I never -- I never did. Russell simply
13
any sense. Because the feature was for 13
said you converted. Just like he would say
14
seven years, there was no reason to because all 14
you -- this is the deal.
15
of these entities were under the same thing. 15
Q. All right. Sir, let's try this a
16
Q. Well, let me ask you this, then. 16
different way. Because I don't think you are
17
How could you have received a 17
exactly answering my question.
18
percentage in Aracar based upon the purchase 18
Take a look at the purchase
19
memorandum unless it was a conversion? 19
agreement. Take as much time as you need to
20
A. If -- if -- if I looked at -- like a 20
look at it. I'd like you to tell me, under this
21
financial statement of a company, there's a 21
purchase agreement whether you can get a
22
diluted basis and a fully -- there's a before 22
percentage of Aracar stock through any other
23
dilution and -- and -- well, there's like a line 23
mechanism besides conversion.
24
that says fully diluted. Which means every 24
MR. SERRITELLA: Objection. That
25
option, every warrant is considered it's been 25
calls for a legal conclusion. And what --
Scheduling@TP.One 800.FOR.DEPO
www.TP.One (800.367.3376)
DayNEW
FILED: 2 YORK COUNTY CLERK 02/25/2023 06:25 AM INDEX NO.9/29/2022
654992/2022
NYSCEF DOC. NO. 62 Page 5 (14
RECEIVED NYSCEF: - 17)
02/25/2023
Page 14 Page 16
1 what provision are you pointing at? You 1
Q. I don't know that your answer is
2 want him to read the whole document right 2
exactly --
3 now? 3
A. No, I --
4 MR. GALTERIO: This is his e-mail. 4
Q. My question was, are you aware of
5 MR. SERRITELLA: Mr. Felsenfeld, we 5
any other way under the purchase agreement to
6 are pressed for time. 6
obtain Aracar shares, either you or the trust,
7 ARBITRATOR FELSENFELD: No. No. 7
other than through conversion?
8 But that's -- that's not a reason at all. 8
So I'm not going to put words in
9 MR. SERRITELLA: I understand. But 9
your mouth, but that was my question. Is your
10 this is a waste of time. 10
answer yes to that?
11 ARBITRATOR FELSENFELD: It's not. 11
A. Yes.
12 It's not a waste of time. There -- there 12
Q. Because if it is, then I want to
13 is in your question -- 13
know what other way this agreement provides that
14 MR. GALTERIO: I'll rephrase it if 14
you can get stock. Just this agreement.
15 you'd like. 15
A. No, the answer is yes. The economic
16 ARBITRATOR FELSENFELD: There is an 16
benefit I got from the lending. Which would
17 assumption in your question that I think is 17
apply to the units we owned, and increase the
18 not necessarily consistent with the 18
cash flows.
19 witness' testimony. 19
Q. I'm not sure you understand my
20 I understand how it flows from the 20
question. I'm going to rephrase it.
21 language of this document. Maybe rephrase 21
A. No, I said -- I said yes.
22 the question and see if you can eliminate 22
Q. So there was another way under this
23 the assumption. 23
agreement --
24 BY MR. GALTERIO: 24
A. No. I said yes, you are correct
25 Q. Are -- 25
in -- in one of the assumptions you made about
Page 15 Page 17
1
ARBITRATOR FELSENFELD: He's 1
the agreement, yes.
2
already testified that this e-mail was 2
Q. I'll rephrase the question.
3
poorly drafted. 3
So it's your testimony that you
4
MR. GALTERIO: Okay. 4
agree that this purchase memorandum allows for
5
ARBITRATOR FELSENFELD: But I 5
the acquisition of shares of either RussellCar
6
understand that you are basing the question 6
or Aracar, for the sake of this question, only
7
on the language in the e-mail. 7
if you convert?
8
MR. GALTERIO: Correct. 8
A. Yes. But not either, it would be
9
ARBITRATOR FELSENFELD: Right. 9
both of them.
10
BY MR. GALTERIO: 10
Q. Okay. Thank you. And one more
11
Q. Are you aware of any other way under 11
clean-up question.
12
the purchase agreement to obtain -- for you to 12
I believe yesterday, you can correct
13
obtain or the trust to obtain shares of Aracar 13
me if I'm wrong, that you testified that all of
14
stock other than through conversion? 14
the work that you did for Aracar, including
15
MR. SERRITELLA: Objection. 15
raising capital, you were not receiving any
16
Are you talking about Aracar stock 16
commission for and it was the equity that you
17
or RussellCar stock? 17
got; is that correct?
18
ARBITRATOR FELSENFELD: Either. 18
A. Yes.
19
MR. GALTERIO: Either. 19
Q. I'm going to show you a document
20
A. I had not. Just to clarify. 20
that's called -- that's marked FF.
21
Q. That's not my question, sir. 21
(At this time, the witness
22
A. Okay. But I had neither. And based 22
perused the aforementioned item.)
23
on this -- under this agreement and excluding 23
A. Oh. This is after. This is -- this
24
the e-mail, yes. But the e-mail says about, I 24
is --
25
earned it. And I didn't get it. 25
Q. Well, I'm going to ask you a
Scheduling@TP.One 800.FOR.DEPO
www.TP.One (800.367.3376)
DayNEW
FILED: 2 YORK COUNTY CLERK 02/25/2023 06:25 AM INDEX NO.9/29/2022
654992/2022
NYSCEF DOC. NO. 62 Page 6 (18
RECEIVED NYSCEF: - 21)
02/25/2023
Page 18 Page 20
1 question about it. 1 Mitchell Marx brought on, who is going to issue
2 This document refers to you 2 the standby letter of credit.
3 potentially receiving a commission for raising 3 He sent me term sheets on it. And
4 capital, does it not? 4 in the term sheets it said that the shares were
5 A. Yes. But you are misrepresenting 5 going to get sold for a thousand dollars a
6 when this document occurred. 6 share, which was the five million dollars. And
7 Q. No, I'm not. 7 then on top of it, he was going to pay me what
8 ARBITRATOR FELSENFELD: He didn't 8 he conceded was owed in my pension money, which
9 represent anything. 9 was 1.4 million. And that that was going to end
10 A. You are saying this is during -- I 10 all of this.
11 left -- when I was forced out of Aracar is when 11 Q. What was the 1.2 percent?
12 I was working there. I worked for -- there 12 A. The York -- he then -- York pulled
13 until the summer of 2018. This was afterwards 13 out of the deal after they did due diligence.
14 when Russell kept saying well, you need to 14 He then had Mitchell contact me and he called me
15 continue to help raise money. But now Vito is 15 and said I needed to find a buyer to -- a funder
16 going to be in charge of everything, so 16 to replace York to do the deal.
17 everything has to go through Vito. 17 I then spent, I believe, eight
18 Q. So you never were under the 18 months finding a buyer, Monroe Capital, that put
19 understanding that prior to 2017 -- '18, the 19 up a hundred million dollars. They wanted --
20 summer of 2018, that if you raised money for 20 they had one requirement. And that was a
21 Aracar, that you would not get commission? 21 deposit of $100,000 that Paul Canes, who was
22 A. I was going to get paid when the 22 doing the guarantee, was going to reimburse.
23 company could get paid. But I was getting paid 23 And Aracar -- and then the same deal was going
24 in equity. 24 to occur, but I was going to get paid a percent
25 Q. Only equity? 25 for -- for getting Monroe Capital and all the
Page 19 Page 21
1
A. Only equity, until the company could 1 time it took to find the replacement.
2
have sufficient cash flows. Like all people 2 I -- Clearwater was going to get
3
that start a company, you get equity because you 3 paid because I dedicated eight months to it.
4
haven't raised capital to pay anybody so you are 4 Q. What time period was that?
5
paying the cash employees first. And then you 5 A. That was after this fell through.
6
are paying the other people that have founded 6 So Russell said he -- this was supposed to be
7
the company and have the ownership of it. Based 7 consummated in October. Russell promised to put
8
on the ability for the cash flows to sustain 8 a lien on his house if it wasn't.
9
them and sustain the business. 9 ARBITRATOR FELSENFELD: He just
10
Q. Do you remember at all a transaction 10 asked you when it happened. We need to get
11
involving the standby letter of credit where you 11 a direct answer.
12
were claiming you were entitled to a commission 12 THE WITNESS: Sorry. I was
13
of 1.2 percent? 13 thinking out loud.
14
A. Of course. I was forced to do it. 14 A. It was -- I'm sorry. I think
15
Q. When was that? 15 October -- I'm sorry. Which -- which part, just
16
A. Which -- which time? 16 the first standby letter of credit? Or the
17
Q. That's -- okay. Were there -- 17 second?
18
A. The standby letter of credit started 18 Q. The first.
19
off as Russell saying -- as this global 19 A. York Capital or --
20
settlement we talked about yesterday. Which was 20 Q. The first one.
21
Russell saying I have a buyer and a person in 21 A. The first one was, I think,
22
London that is going to issue a standby letter 22 September. I could be confusing this. But this
23
of credit. So I have a buyer of your stock and 23 was -- this -- the York Capital deal was either
24
that's your capital. I have a person in London, 24 in September -- I think it was September 2019.
25
Peter Cane -- Paul Canes (phonetic), who 25 It might not be September 2019, now September --
Scheduling@TP.One 800.FOR.DEPO
www.TP.One (800.367.3376)
DayNEW
FILED: 2 YORK COUNTY CLERK 02/25/2023 06:25 AM INDEX NO.9/29/2022
654992/2022
NYSCEF DOC. NO. 62 Page 7 (22
RECEIVED NYSCEF: - 25)
02/25/2023
Page 22 Page 24
1 so this might be -- I'm not certain of that. 1 agreement said.
2 Q. Were they subsequent to this date or 2 MR. GALTERIO: Well, I think that
3 prior to this date? 3 if you define Aracar's related entity, then
4 A. The York Capital deal was -- was -- 4 it becomes an issuer.
5 when you say this deal -- 5 MR. SERRITELLA: Object to that.
6 ARBITRATOR FELSENFELD: Just this 6 It's a legal question.
7 date, he said. 7 ARBITRATOR FELSENFELD: That's not
8 THE WITNESS: I'm sorry. Date. 8 what the agreement provided. It had
9 Q. Prior to September -- 9 provided for conversion into the holding
10 A. Oh, City -- yes, this was something 10 company and prior correspondence to find
11 that I had been -- City was -- 11 that as the RussellCar holding company.
12 Q. No, no, no. The York Capital deal. 12 So if you phrase it in terms of
13 ARBITRATOR FELSENFELD: Hold on. 13 either Aracar or RussellCar.
14 Hold on. Listen -- 14 MR. GALTERIO: Well, I think -- how
15 THE WITNESS: Yeah. 15 about if I ask for both because --
16 ARBITRATOR FELSENFELD: You are 16 ARBITRATOR FELSENFELD: That's what
17 doing all your thinking out loud and it 17 I'm saying.
18 just -- 18 MR. GALTERIO: Because, I mean, we
19 THE WITNESS: Sorry. 19 do have this e-mail.
20 ARBITRATOR FELSENFELD: You are 20 ARBITRATOR FELSENFELD: I
21 just saying things as it's going through 21 understand. So if you don't limit the
22 your mind. Think about the question, 22 conversion to Aracar --
23 formulate your answer, and then give it so 23 MR. GALTERIO: Why don't we assume
24 that we can have clear testimony. Okay? 24 that the conversion included Aracar?
25 Just answer the question. All right? 25 ARBITRATOR FELSENFELD: Well, you
Page 23 Page 25
1 Go ahead. You want to -- 1
can make that assumption. But that is a --
2 Q. Was the York transaction prior to 2
look, I'm not telling you how to ask.
3 September of 2018? 3
There was an objection and there --
4 A. No. 4
there -- there was in there something that
5 Q. Subsequent? 5
perhaps is lacking foundation based on what
6 A. Yes. 6
I've just explained.
7 Q. Was there any standby letter of 7
I think the way to deal with it is
8 credit transaction that occurred prior to 8
to include either Aracar or RussellCar.
9 September of 2018 in which you were going to 9
Preview
FILED: NEW YORK COUNTY CLERK 02/25/2023 06:25 AM INDEX NO. 654992/2022 NYSCEF DOC. NO. 62 RECEIVED NYSCEF: 02/25/2023 Transcript of Day 2 Thursday, September 29, 2022 Abrams et. al v. Abrams et. al 01-20-0007-3684 www.TP.One www.aldersonreporting.com www.accutrancr.com 800.FOR.DEPO (800.367.3376) Scheduling@TP.One Reference Number: 121128 DayNEW FILED: 2 YORK COUNTY CLERK 02/25/2023 06:25 AM INDEX NO.9/29/2022 654992/2022 NYSCEF DOC. NO. 62 Page RECEIVED NYSCEF: 1 (1) 02/25/2023 1 AMERICAN ARBITRATION ASSOCIATION 2 ------------------------------------) MARCUS ABRAMS, CLEARWATER VENTURES, ) 3 INC., LISA ABRAMS and the ) LISA ABRAMS REVOCABLE TRUST, ) 4 ) Case No.: )01-20-0007-3684 5 Claimants, ) ) 6 -against- ) ) 7 RUSSELL ABRAMS, SANDRA ABRAMS and ) "RUSSELLCAR and its related ) 8 entities" defined in the parties ) agreement as "ISSUER" ) 9 ) Respondents. ) 10 ------------------------------------) 11 12 MINUTES OF PROCEEDINGS 13 HELD AT 110 WEST 40TH STREET, 14 NEW YORK, NEW YORK 15 September 29, 2022 16 9:40 a.m. 17 Day 2 18 B E F O R E: ARTHUR D. FELSENFELD, ESQ. ARBITRATOR 19 20 21 Reported by: Elbia Brumit 22 23 24 25 Scheduling@TP.One 800.FOR.DEPO www.TP.One (800.367.3376) DayNEW FILED: 2 YORK COUNTY CLERK 02/25/2023 06:25 AM INDEX NO.9/29/2022 654992/2022 NYSCEF DOC. NO. 62 Page 202/25/2023 RECEIVED NYSCEF: (2 - 5) Page 2 Page 4 1 A P P E A R A N C E S: 1 EXHIBITS IDENTIFIED 2 2 CLAIMANTS' EXHIBITS 3 ARBITRATOR: ARTHUR D. FELSENFELD, 3 EXHIBIT DESCRIPTION PAGE 4 afelsenfeld@gaspanllp.com 4 Exhibit No. 1 Purchase Memora 86, 125, 239 5 5 Exhibit No. 2 Statement of Claim 123 6 KIM & SERRITELLA LLP 6 Exhibit No. 32 Financials 125, 127, Attorneys for Claimants 236, 301 7 110 W. 40th Street, 10th Floor 7 Exhibit No. 45 Expert Reports 116 New York, New York 10018 8 BY: JAMES R. SERRITELLA, ESQ. 8 Exhibit No. 47 Report 152 JUSTIN STONE, ESQ. 9 E-mail: jserritella@kandslaw.com 9 Exhibit No. 48 Amended Expert Report 151 10 10 Exhibit No. 49 Rebuttal 215 11 11 Exhibit No. 50 E-mail 167, 181 12 JAFFE & ASHER LLP 12 Exhibit No. 51 E-mail 168, 183 Attorneys for Respondents 13 600 Third Avenue, 24th Floor 13 Exhibit No. 52 E-mail 168 New York, New York 10601 14 BY: GREGORY GALTERIO, ESQ. 14 Exhibit No. 62 Rebuttal 208 GLENN P. BERGER, ESQ. 15 E-mail: ggalterio@jaffeandasher.com 15 Exhibit No. 80 E-mail 28, 119, 16 Phone No.: 212-687-3000 16 Exhibit No. 81 E-mail 178, 263 34, 121 17 17 18 ALSO PRESENT: 18 19 MARCUS ABRAMS 19 20 LISA ABRAMS 20 21 21 22 22 23 23 24 24 25 25 Page 3 Page 5 1 INDEX 1 EXHIBITS IDENTIFIED (Continued.) RESPONDENTS' EXHIBITS 2 2 EXHIBIT DESCRIPTION PAGE 3 EXAMINATION OF MARCUS ABRAMS 3 Exhibit A E-mail 288 4 EXAMINATION BY PAGE 4 Exhibit I E-mail 273 5 MR. GALTERIO 6 5 Exhibit N Agreement 270 6 MR. SERRITELLA 28 6 Exhibit O Income Statement 199 7 7 Exhibit P Income Statement 199 8 8 Exhibit W Diagram 29 9 EXAMINATION OF LISA ABRAMS 9 Exhibit AA Report 155, 268 10 EXAMINATION BY PAGE 10 Exhibit DD1 E-mail 6 11 MR. STONE 41, 104 11 Exhibit FF E-mail 17 12 MR. GALTERIO 85 12 13 13 14 14 15 EXAMINATION OF ROBERT JONES 15 16 EXAMINATION BY PAGE 16 17 MR. STONE 108, 300 17 18 MR. BERGER 228 18 19 MR. GALTERIO 297 19 20 20 21 21 22 22 23 23 24 24 25 25 Scheduling@TP.One 800.FOR.DEPO www.TP.One (800.367.3376) DayNEW FILED: 2 YORK COUNTY CLERK 02/25/2023 06:25 AM INDEX NO.9/29/2022 654992/2022 NYSCEF DOC. NO. 62 Page 302/25/2023 RECEIVED NYSCEF: (6 - 9) Page 6 Page 8 1 ARBITRATOR FELSENFELD: We are here 1 Q. I remember yesterday you weren't 2 on day two of the hearing in Abrams V. 2 sure what the attachment of this was or you 3 Abrams. 3 weren't certain; is that correct? 4 Mr. Galterio, you were going to 4 A. Yes. 5 recall Mr. Marcus Abrams to deal with the 5 Q. Okay. So now does this refresh your 6 one document that was missing an 6 recollection that the agreement that you 7 attachment. It's now 9:41, I see that your 7 attached to this e-mail is indeed the purchase 8 client is not here. 8 memorialization? 9 Are you prepared to proceed with 9 A. Yes. As well as the guarantee. 10 the questioning of Mr. Marcus Abrams? 10 Q. And let's go back to the first page 11 MR. GALTERIO: Yes, I am, sir. 11 of the e-mail. Where it says, "Sandra, I don't 12 ARBITRATOR FELSENFELD: Okay. 12 know if you've seen this," but the agreement 13 MR. GALTERIO: And I also have one 13 that was supposed to be -- this is -- "but it, 14 other document that I might present. 14 the agreement that was supposed to be followed 15 ARBITRATOR FELSENFELD: Okay. 15 regarding my investment. This is why I received 16 MR. GALTERIO: Okay. 16 my percentage in Aracar." 17 M A R C U S A B R A M S, having been previously 17 Okay? You were certainly referring 18 duly sworn, was cross-examined and testified as 18 to the purchase memorandum, correct? 19 follows: 19 A. Yes, I was. I was, in this e-mail, 20 RECROSS EXAMINATION BY 20 explaining all of the bases that -- because 21 MR. GALTERIO: 21 there were multiple ones that -- 22 Q. So Mr. Abrams, I'm going to show you 22 ARBITRATOR FELSENFELD: Could you 23 what's been marked as Exhibit double D1. And 23 just answer the question? 24 I'm representing to you that this was the e-mail 24 THE WITNESS: Yes. 25 that we were discussing yesterday which Sandra 25 Q. And when you said, "This is why I Page 7 Page 9 1 forwarded to me last night. And which -- 1 received my percentage in Aracar," you are 2 actually, I printed out the attachment that was 2 referring to the purchase memorandum, are you 3 attached to that e-mail. So you can look at 3 not? 4 that, too. 4 A. I hadn't -- no. Well, I -- no. 5 (At this time, the witness 5 Q. Tell me what you were referring to. 6 perused the aforementioned item.) 6 A. I was referring to -- well, second 7 ARBITRATOR FELSENFELD: Do you have 7 to last sentence, in terms of the work I've done 8 a copy for me? 8 for Aracar creating it, nothing I received. I 9 MR. GALTERIO: Oh. Absolutely. 9 didn't receive any cash or equity. 10 ARBITRATOR FELSENFELD: Thank you. 10 At this point, I hadn't received 11 MR. GALTERIO: Sure. 11 equity, the promised equity for work as well as, 12 ARBITRATOR FELSENFELD: And before 12 under the agreement, all the entities flowing 13 you answer the questions, Mr. Abrams, you 13 would be covered under the conversion feature. 14 understand you are still under oath? 14 Which was still on -- which had never been -- we 15 THE WITNESS: Yes. 15 had never exercised. 16 ARBITRATOR FELSENFELD: I'm sorry. 16 Q. All right. Let's break this down. 17 Did you pose a question? 17 Let's look at the last sentence of 18 MR. GALTERIO: No. I was waiting 18 this. 19 for you to tell me I can proceed. 19 It says, "In terms of the work I've 20 ARBITRATOR FELSENFELD: Oh, by all 20 done for Aracar in creating it from nothing, I 21 means, please. 21 didn't receive any cash or equity." 22 BY MR. GALTERIO: 22 What did you mean by that? 23 Q. Did you have a chance to look at 23 A. At this time, we hadn't -- I hadn't 24 this document, sir? 24 received the equity that was promised. 25 A. Yes. 25 Q. All right. And then if you hadn't Scheduling@TP.One 800.FOR.DEPO www.TP.One (800.367.3376) DayNEW FILED: 2 YORK COUNTY CLERK 02/25/2023 06:25 AM INDEX NO.9/29/2022 654992/2022 NYSCEF DOC. NO. 62 Page 4 (10 RECEIVED NYSCEF: - 13) 02/25/2023 Page 10 Page 12 1 received any equity, then why were you saying in 1 exercised and you have a percentage. 2 the second sentence, "This is why I received my 2 But on top -- I'll just say that 3 percentage in Aracar"? 3 Russell didn't -- this didn't start off as oh, 4 A. I'm not sure. I don't -- 4 this is convertible debt and then it just 5 Q. Well, if you were reading it and you 5 maintained that. Russell's position on this was 6 are just reading it objectively, take out your 6 all over the board. The beginning, it was 7 subjective knowledge, what does that mean to 7 preferred equity. 8 you? 8 The only time he fully said -- and 9 MR. SERRITELLA: Objection. Calls 9 then he said at one point, oh, we'll -- we'll 10 for speculation. 10 mark the Aracar stock as a dividend. And then 11 ARBITRATOR FELSENFELD: Yeah, how 11 he said we'll -- you know, it -- what this 12 can you do that? 12 was -- and that's why the whole document is 13 MR. GALTERIO: Okay. Withdrawn. 13 called purchase memorialization. Because he -- 14 Q. So at this time, is it your 14 he referred to it as everything under the sun. 15 testimony that you had no percentage in Aracar? 15 But basically, the way -- in terms 16 A. I had no documents. Or any -- 16 of the terminology, the legal -- the legal like 17 Q. That's not my question. 17 terminology. To me, there's equity and there's 18 A. In my mind, you are saying? 18 debt. Equity, you don't get paid. Equity, you 19 Q. I said -- 19 get paid just based on, you have far more risk. 20 A. Yes. In my mind, I had -- I was -- 20 Debt, you don't. 21 I had earned equity in Aracar, as well as Aracar 21 So it was all over the place. You 22 was part of RussellCar. And that the agreement 22 keep saying like oh, wasn't this in the 23 allowed for the conversion, which would cover 23 provision or that in the provision. But he's 24 all of the entities that -- that was -- that 24 the one who -- he said to get units. He said to 25 formed. That -- that were included in it. 25 purchase these units. The units, you get the Page 11 Page 13 1 Q. But you don't know why you said, 1 money from. And I was just trying to get 2 "This is why I received my percentage in 2 something on a piece of paper that reflected 3 Aracar," following the first sentence? 3 his -- what he said. 4 A. Probably should have written -- this 4 So this was in the middle of Sandra 5 is another -- this is the second reason why 5 and I trying to work -- I looked at the context. 6 we -- we have equity in this thing. And just 6 This was in the middle of Sandra and I talking 7 because your husband is saying they're separate 7 about trying to get Russell to agree to settle 8 now, you don't get it. And then he said it's -- 8 this other case and focus on the insurance. 9 it's -- Russell's story changed on a daily 9 So if I worded it poorly, then I 10 basis. He -- I never converted. 10 worded it poorly. But the -- the truth and the 11 I never said I want to convert. I 11 facts are that I never, ever said I want to 12 never wanted to convert, because it didn't make 12 convert, I never -- I never did. Russell simply 13 any sense. Because the feature was for 13 said you converted. Just like he would say 14 seven years, there was no reason to because all 14 you -- this is the deal. 15 of these entities were under the same thing. 15 Q. All right. Sir, let's try this a 16 Q. Well, let me ask you this, then. 16 different way. Because I don't think you are 17 How could you have received a 17 exactly answering my question. 18 percentage in Aracar based upon the purchase 18 Take a look at the purchase 19 memorandum unless it was a conversion? 19 agreement. Take as much time as you need to 20 A. If -- if -- if I looked at -- like a 20 look at it. I'd like you to tell me, under this 21 financial statement of a company, there's a 21 purchase agreement whether you can get a 22 diluted basis and a fully -- there's a before 22 percentage of Aracar stock through any other 23 dilution and -- and -- well, there's like a line 23 mechanism besides conversion. 24 that says fully diluted. Which means every 24 MR. SERRITELLA: Objection. That 25 option, every warrant is considered it's been 25 calls for a legal conclusion. And what -- Scheduling@TP.One 800.FOR.DEPO www.TP.One (800.367.3376) DayNEW FILED: 2 YORK COUNTY CLERK 02/25/2023 06:25 AM INDEX NO.9/29/2022 654992/2022 NYSCEF DOC. NO. 62 Page 5 (14 RECEIVED NYSCEF: - 17) 02/25/2023 Page 14 Page 16 1 what provision are you pointing at? You 1 Q. I don't know that your answer is 2 want him to read the whole document right 2 exactly -- 3 now? 3 A. No, I -- 4 MR. GALTERIO: This is his e-mail. 4 Q. My question was, are you aware of 5 MR. SERRITELLA: Mr. Felsenfeld, we 5 any other way under the purchase agreement to 6 are pressed for time. 6 obtain Aracar shares, either you or the trust, 7 ARBITRATOR FELSENFELD: No. No. 7 other than through conversion? 8 But that's -- that's not a reason at all. 8 So I'm not going to put words in 9 MR. SERRITELLA: I understand. But 9 your mouth, but that was my question. Is your 10 this is a waste of time. 10 answer yes to that? 11 ARBITRATOR FELSENFELD: It's not. 11 A. Yes. 12 It's not a waste of time. There -- there 12 Q. Because if it is, then I want to 13 is in your question -- 13 know what other way this agreement provides that 14 MR. GALTERIO: I'll rephrase it if 14 you can get stock. Just this agreement. 15 you'd like. 15 A. No, the answer is yes. The economic 16 ARBITRATOR FELSENFELD: There is an 16 benefit I got from the lending. Which would 17 assumption in your question that I think is 17 apply to the units we owned, and increase the 18 not necessarily consistent with the 18 cash flows. 19 witness' testimony. 19 Q. I'm not sure you understand my 20 I understand how it flows from the 20 question. I'm going to rephrase it. 21 language of this document. Maybe rephrase 21 A. No, I said -- I said yes. 22 the question and see if you can eliminate 22 Q. So there was another way under this 23 the assumption. 23 agreement -- 24 BY MR. GALTERIO: 24 A. No. I said yes, you are correct 25 Q. Are -- 25 in -- in one of the assumptions you made about Page 15 Page 17 1 ARBITRATOR FELSENFELD: He's 1 the agreement, yes. 2 already testified that this e-mail was 2 Q. I'll rephrase the question. 3 poorly drafted. 3 So it's your testimony that you 4 MR. GALTERIO: Okay. 4 agree that this purchase memorandum allows for 5 ARBITRATOR FELSENFELD: But I 5 the acquisition of shares of either RussellCar 6 understand that you are basing the question 6 or Aracar, for the sake of this question, only 7 on the language in the e-mail. 7 if you convert? 8 MR. GALTERIO: Correct. 8 A. Yes. But not either, it would be 9 ARBITRATOR FELSENFELD: Right. 9 both of them. 10 BY MR. GALTERIO: 10 Q. Okay. Thank you. And one more 11 Q. Are you aware of any other way under 11 clean-up question. 12 the purchase agreement to obtain -- for you to 12 I believe yesterday, you can correct 13 obtain or the trust to obtain shares of Aracar 13 me if I'm wrong, that you testified that all of 14 stock other than through conversion? 14 the work that you did for Aracar, including 15 MR. SERRITELLA: Objection. 15 raising capital, you were not receiving any 16 Are you talking about Aracar stock 16 commission for and it was the equity that you 17 or RussellCar stock? 17 got; is that correct? 18 ARBITRATOR FELSENFELD: Either. 18 A. Yes. 19 MR. GALTERIO: Either. 19 Q. I'm going to show you a document 20 A. I had not. Just to clarify. 20 that's called -- that's marked FF. 21 Q. That's not my question, sir. 21 (At this time, the witness 22 A. Okay. But I had neither. And based 22 perused the aforementioned item.) 23 on this -- under this agreement and excluding 23 A. Oh. This is after. This is -- this 24 the e-mail, yes. But the e-mail says about, I 24 is -- 25 earned it. And I didn't get it. 25 Q. Well, I'm going to ask you a Scheduling@TP.One 800.FOR.DEPO www.TP.One (800.367.3376) DayNEW FILED: 2 YORK COUNTY CLERK 02/25/2023 06:25 AM INDEX NO.9/29/2022 654992/2022 NYSCEF DOC. NO. 62 Page 6 (18 RECEIVED NYSCEF: - 21) 02/25/2023 Page 18 Page 20 1 question about it. 1 Mitchell Marx brought on, who is going to issue 2 This document refers to you 2 the standby letter of credit. 3 potentially receiving a commission for raising 3 He sent me term sheets on it. And 4 capital, does it not? 4 in the term sheets it said that the shares were 5 A. Yes. But you are misrepresenting 5 going to get sold for a thousand dollars a 6 when this document occurred. 6 share, which was the five million dollars. And 7 Q. No, I'm not. 7 then on top of it, he was going to pay me what 8 ARBITRATOR FELSENFELD: He didn't 8 he conceded was owed in my pension money, which 9 represent anything. 9 was 1.4 million. And that that was going to end 10 A. You are saying this is during -- I 10 all of this. 11 left -- when I was forced out of Aracar is when 11 Q. What was the 1.2 percent? 12 I was working there. I worked for -- there 12 A. The York -- he then -- York pulled 13 until the summer of 2018. This was afterwards 13 out of the deal after they did due diligence. 14 when Russell kept saying well, you need to 14 He then had Mitchell contact me and he called me 15 continue to help raise money. But now Vito is 15 and said I needed to find a buyer to -- a funder 16 going to be in charge of everything, so 16 to replace York to do the deal. 17 everything has to go through Vito. 17 I then spent, I believe, eight 18 Q. So you never were under the 18 months finding a buyer, Monroe Capital, that put 19 understanding that prior to 2017 -- '18, the 19 up a hundred million dollars. They wanted -- 20 summer of 2018, that if you raised money for 20 they had one requirement. And that was a 21 Aracar, that you would not get commission? 21 deposit of $100,000 that Paul Canes, who was 22 A. I was going to get paid when the 22 doing the guarantee, was going to reimburse. 23 company could get paid. But I was getting paid 23 And Aracar -- and then the same deal was going 24 in equity. 24 to occur, but I was going to get paid a percent 25 Q. Only equity? 25 for -- for getting Monroe Capital and all the Page 19 Page 21 1 A. Only equity, until the company could 1 time it took to find the replacement. 2 have sufficient cash flows. Like all people 2 I -- Clearwater was going to get 3 that start a company, you get equity because you 3 paid because I dedicated eight months to it. 4 haven't raised capital to pay anybody so you are 4 Q. What time period was that? 5 paying the cash employees first. And then you 5 A. That was after this fell through. 6 are paying the other people that have founded 6 So Russell said he -- this was supposed to be 7 the company and have the ownership of it. Based 7 consummated in October. Russell promised to put 8 on the ability for the cash flows to sustain 8 a lien on his house if it wasn't. 9 them and sustain the business. 9 ARBITRATOR FELSENFELD: He just 10 Q. Do you remember at all a transaction 10 asked you when it happened. We need to get 11 involving the standby letter of credit where you 11 a direct answer. 12 were claiming you were entitled to a commission 12 THE WITNESS: Sorry. I was 13 of 1.2 percent? 13 thinking out loud. 14 A. Of course. I was forced to do it. 14 A. It was -- I'm sorry. I think 15 Q. When was that? 15 October -- I'm sorry. Which -- which part, just 16 A. Which -- which time? 16 the first standby letter of credit? Or the 17 Q. That's -- okay. Were there -- 17 second? 18 A. The standby letter of credit started 18 Q. The first. 19 off as Russell saying -- as this global 19 A. York Capital or -- 20 settlement we talked about yesterday. Which was 20 Q. The first one. 21 Russell saying I have a buyer and a person in 21 A. The first one was, I think, 22 London that is going to issue a standby letter 22 September. I could be confusing this. But this 23 of credit. So I have a buyer of your stock and 23 was -- this -- the York Capital deal was either 24 that's your capital. I have a person in London, 24 in September -- I think it was September 2019. 25 Peter Cane -- Paul Canes (phonetic), who 25 It might not be September 2019, now September -- Scheduling@TP.One 800.FOR.DEPO www.TP.One (800.367.3376) DayNEW FILED: 2 YORK COUNTY CLERK 02/25/2023 06:25 AM INDEX NO.9/29/2022 654992/2022 NYSCEF DOC. NO. 62 Page 7 (22 RECEIVED NYSCEF: - 25) 02/25/2023 Page 22 Page 24 1 so this might be -- I'm not certain of that. 1 agreement said. 2 Q. Were they subsequent to this date or 2 MR. GALTERIO: Well, I think that 3 prior to this date? 3 if you define Aracar's related entity, then 4 A. The York Capital deal was -- was -- 4 it becomes an issuer. 5 when you say this deal -- 5 MR. SERRITELLA: Object to that. 6 ARBITRATOR FELSENFELD: Just this 6 It's a legal question. 7 date, he said. 7 ARBITRATOR FELSENFELD: That's not 8 THE WITNESS: I'm sorry. Date. 8 what the agreement provided. It had 9 Q. Prior to September -- 9 provided for conversion into the holding 10 A. Oh, City -- yes, this was something 10 company and prior correspondence to find 11 that I had been -- City was -- 11 that as the RussellCar holding company. 12 Q. No, no, no. The York Capital deal. 12 So if you phrase it in terms of 13 ARBITRATOR FELSENFELD: Hold on. 13 either Aracar or RussellCar. 14 Hold on. Listen -- 14 MR. GALTERIO: Well, I think -- how 15 THE WITNESS: Yeah. 15 about if I ask for both because -- 16 ARBITRATOR FELSENFELD: You are 16 ARBITRATOR FELSENFELD: That's what 17 doing all your thinking out loud and it 17 I'm saying. 18 just -- 18 MR. GALTERIO: Because, I mean, we 19 THE WITNESS: Sorry. 19 do have this e-mail. 20 ARBITRATOR FELSENFELD: You are 20 ARBITRATOR FELSENFELD: I 21 just saying things as it's going through 21 understand. So if you don't limit the 22 your mind. Think about the question, 22 conversion to Aracar -- 23 formulate your answer, and then give it so 23 MR. GALTERIO: Why don't we assume 24 that we can have clear testimony. Okay? 24 that the conversion included Aracar? 25 Just answer the question. All right? 25 ARBITRATOR FELSENFELD: Well, you Page 23 Page 25 1 Go ahead. You want to -- 1 can make that assumption. But that is a -- 2 Q. Was the York transaction prior to 2 look, I'm not telling you how to ask. 3 September of 2018? 3 There was an objection and there -- 4 A. No. 4 there -- there was in there something that 5 Q. Subsequent? 5 perhaps is lacking foundation based on what 6 A. Yes. 6 I've just explained. 7 Q. Was there any standby letter of 7 I think the way to deal with it is 8 credit transaction that occurred prior to 8 to include either Aracar or RussellCar. 9 September of 2018 in which you were going to 9